Feds say Christie knew risk on tunnel

Governor Christie successfully urged federal officials in April to fund Washington's share of a new Hudson River tunnel using a type of funding agreement that federal law clearly says had to be repaid if the state backed out of the project.

Christie cancelled the project Oct. 27, after several senior federal transportation officials told him about the legal requirement.

Now he is fighting an effort by the Federal Transit Administration to recoup the $271 million in federal funds spent on the project, and NJ Transit on Thursday hired a politically powerful Washington law firm to handle the case.

Christie and several allies in the Legislature and Congress contend New Jersey is being singled out for unfair treatment because transit projects in other states, especially a bus terminal in Rochester, N.Y., were canceled and federal money did not have to be repaid.

But the Rochester project - which is not dead, and could break ground next year - was not covered by the same type of contract that NJ Transit signed in 2009 when the tunnel project began, known as an Early System Work Agreement. Christie successfully lobbied for a new ESWA that was signed in April to speed up the work.

"Governor Christie's decision to renege on that contract and abandon the project is what now requires us to insist on the return of federal funds expended under the ESWA," FTA Administrator Peter Rogoff said in a statement.

Christie has repeatedly said the state should not have to pay the money back, and his spokesman said the administration was confident of success.

"We are relying on the expertise of our outside counsel to address the interests of New Jersey with the federal government," spokesman Michael Drewniak said. "Clearly, there are other issues, in addition to ones we've identified, which we believe work in our favor. We've also received support of our position from numerous members of New Jersey's congressional delegation."

Early System Work Agreements are rare. Just five, including the one with NJ Transit, have been used since the FTA's New Starts program to expand mass transit began more than 30 years ago. Most major transit projects are built under what's known as a Full Funding Grant Agreement, which is very time-consuming to conclude.

The ESWA process is used in projects such as the tunnel where all the parties have put their money up and they want to get started because waiting for a full agreement could drive up the cost of the project.

None of the four other projects using this process ended in default. Three of them - in New Orleans, Seattle and Salt Lake City - were completed. Work continues on the fourth, the Second Avenue Subway line in New York City.

The federal statute covering Early System Work Agreements says that if an applicant does not build a project "for reasons within the control of the applicant, the applicant shall repay all government payments made under the work agreement plus reasonable interest and penalty charges."

After Christie initially said he would cancel the project and then temporarily put the decision on hold, "He was told on several occasions by DOT, FTA and others that if he gave up on New Jersey's commitments he would have to repay the federal money," a senior USDOT official said Thursday.

The first Early System Work Agreement was signed during the administration of then-Gov. Jon Corzine when ground was broken on the project in the summer of 2009. But in January, NJ Transit sought a new one agreement to speed up work on the project.

Christie reaffirmed New Jersey's commitment to the project in an April 8 letter to U.S. Transportation Secretary Ray LaHood that called the tunnel "critical for the transit riders of New Jersey and the region."

"Given the time constraints of current contractor bids, I look forward to an expeditious award of the second Early System Work Agreement," Christie wrote. Six days later, FTA notified NJ Transit the agreement was granted, allowing for contracts to go forward on parts of the project in North Bergen and Kearny, according to documents released Thursday by the USDOT.

The FTA is not seeking the return of all the money it paid into toward the project. Funds spent on federally mandated alternatives analysis of alternatives, environmental studies and preliminary engineering could be used if a new tunnel project is pursued in the future.